Pril
|
Bref
|
Mr. White
|
Henko
|
Igora Royal
|
Chek
|
Fa
|
BC Bonacure
|
Glatt & Natural Styling
|
Margo
|
Strait Therapy
|
Osis
|
|
Pril
|
Bref
|
Mr. White
|
Henko
|
Igora Royal
|
Chek
|
Fa
|
BC Bonacure
|
Glatt & Natural Styling
|
Margo
|
Strait Therapy
|
Osis
|
|
Hi Rakesh,
Congrats. This was a greatwrite up.
This was one of thesurprisingpicks that did really well for me when i bought a small lot at 140 before bonus.I would say the price paid for Henkel and the value that would add in long term should be huge opportunity for Jyothy labs.
The only thing i am not sure of is Management Quality.
1)Management quality- They seem to be doing well recently by declaring good dividends
Long back, this has been recommended by the PN Vijay of moneycontrol fame.
Not sure, whether this is cheap as current valuation of 30 PE. Still I love the different business model they follow (as compared to typical FMCG companies). Need to have a detailed analysis of this to decide whether to invest at current price or not.
Highlights of the meet by Capital Market.
For Q2 FY14, the net sales have gone up by 33% to Rs 305.92 crore while net profit inclined by more than 999% to Rs 20.87 crore.
The OPM expanded by 466 bps to 13.9%. In an inflationary environment there was an impact of 2% of higher freight charges on the OPM which would have been absent in a normal business environment.
The top-line for the quarter was driven by 25% volume growth and 8% price/mix led growth. Apart from detergents business which grew slower versus other categories due to intense price/promotion war between top-2 players, all other power brands continue to post strong growth which has grown by 36%.
The mgmt said that in Q2 it has lost some amount of sales in Andhra Pradesh and Telangana due to the political instability and also due to the floods in Gujarat and Madhya Pradesh. Rest all the geographies have performed well for the company.
In detergent & soap segment, it has reported a 35% yoy growth led by a strong 77% growth in the Ujala whitener revenues, a 24% growth in dishwash portfolio and 18% - 20% growth in Henko
The mgmt attributed the strong performance to the company’s low market share in the detergents category, consumer uptrading to larger SKUs, market share gains from unorganized segment and decline in fake product sales post change in packaging.
The mgmt said that in detergent category top two players are running numerous price-offs/promotions and have also upped their share of voice in order to target higher market share. As a result, the growth was below expectation.
The company will re-launch the Henko in the next few months with a unique proposition. Henko is in Rs 2000 crore premium detergent segment.
Home care revenues was up 37%, driven by strong growth in Maxo as well as the other smaller brands in this segment. Maxo revenues grew 33%.
The company has invested strongly behind its brands with nearly 58% spike in ad spends and 31% jump in sales promotion for 1H FY14. The company has a ratio of 70:30 for above the line and below line spend. The company will have A&P spend at 10-12% of sales.
The company is planning to raise up to Rs 400 crore of nonconvertible debenture at zero coupon bonds, whose repayment has to be done after three years, in order to provide liquidity and drive growth as now the business has set in with the required sales and profitability growth. Also, the promoters will infuse Rs 250 crore by way of a preferential allotment of 1.5 crore shares by the end of Q3. Both these measures would help the company to pay its debt of Rs 635 crore as on September 30, 2013. Also, out of this total fund raising of about Rs 650 crore, the company is planning to acquire back IL&FS Trust Company stake in Jyothy Fabricare Service (JFSL) for about Rs 70 crore. The company would be acquiring 0.3 crore of compulsory convertible cumulative preference shares of Rs 10 each and 50000 equity shares of Rs 10 each in JFSL presently held by IL&FS.
The company has reduced its finished goods inventory from 55 days to 47 days and has partnered with IBM to achieve further inventory reduction of finished goods by 5 days from January 2014 onwards through efficiencies in forecasting/demand planning.
JFSL’s revenues for 1H FY14 are at Rs 28 crore with a loss at the EBITDA level of about Rs 2 crore, which the management feels would turn positive by March 2014. The mgmt expects JFSL to do top-line of ~Rs 28 crore for 2H FY14.
The company’s products are available through 2.9 million outlets in India and have direct reach of 1 million outlets. Though the company does not expect the number of distributors to increase from the current level, it expects the sub-stockist will increase by 20% from the current 2000 to 2400 by the end of FY14.
The mgmt has maintained its guidance of achieving around 22% - 25% revenue growth and OPM of 14% - 15% in FY14.
Highlights of the meet by Capital Mkt: For Q3 FY14, the net sales have gone up by 27% to Rs 297.43 crore while net profit inclined by 63% to Rs 27.38 crore. Volume grew by 22% while 5% was price/product mix growth. The dishwash and personal care grew higher versus overall volume growth while fabric care and HI grew slower. The OPM declined by 124 bps to 14.26%. The decrease in margin is due to lower gross margins and increase in advertisement and sales promotion expenses. The mgmt said that future gross margin gains were likely to be driven by mix improvement like increased contribution from higher margin brands like Ujala, Henko and higher contribution from urban markets. Soaps and Detergent business, which includes brands like Ujala, Henko, Exo, Pril, Margo, Mr. White, grew by 28% to Rs 240.4 crore. Ujala fabric whitener saw double digit growth. Ujala fabric whitener continues to be the market leader with a market share of 72.5% by value. There was a strong over 25% growth in the dishwash segment especially Exo bars. Pril posted a modest growth. Its market share has stabilized after entry of big competitor 9 months back. Detergent segment has seen moderation in growth due to competitive intensity, which has also impacted its margin. Home Care, which includes mosquito repellant Maxo and Exo scrubber, saw revenues growth of 26% to Rs 56.4 crore. The growth is mainly on account of Maxo Liquid growth. The coils saw moderation due to a weak season. The company now focusing more on Maxo liquid and have target of increasing its contribution from present 24% to 50% in Household Insecticide business in next 2 â 3 years. Others business which include brands like Fa and Neem saw revenue increase of 78.1% at Rs. 3.9 crore. Apart from detergents business which grew slower than other categories due to intense price/promotion war between the top two players, all other power brands continued to post strong growth. Jyothy's brands have shown a volume growth of 24% while Henkel portfolio volume grew by 16%. The company's value market share, as reported by Nielsen, has started showing YoY improvement across brands. Ujala fabric whitener share improved by 100 bps to 73%. Maxo coil share improved 300 bps to 17%. Maxo liquid share improved 100 bps to 5%. However, market shares in the Exo bar down by 100 bps to 10% There was a 25% jump in advertising spends and a 211% rise in sales promotion expenses. The mgmt said that current quarter advertising spends were marginally lower than those in previous quarters due to seasonality. It did not spend on Maxo coils and Margo while spent on Ujala, Exo and Maxo liquids. The company has spend higher on sales promotion in detergents to combat high competitive intensity and Exo to improve distribution/availability. Going ahead, it expects sales promotion to stabilize. The revenue contribution from non-South markets has seen consistent improvement and stood at 53% in Q3 FY14 against 47% a year earlier and 55% in 9M FY14 against 50% a year earlier. The company will continue to invest aggressively in expanding its share of revenue from non-South markets. It sees a great potential in non-south market due to low penetration of its products. For FY15, the company will continue to build on Ujala fabric whitener's new platform through sustained marketing activity, will re-launch Henko with a completely new positioning and formulation in Q1 FY15, will extend Margo brand in skin care category and planned several activities for Maxo in FY15 including entry into low smoke coil and a break-through innovation in Maxo. The company's standalone net debt has fallen to Rs462 crore from Rs 607 crore at the end of March 2013. The company has raised Rs 263 crore via preferential allotment of shares to promoter Group. The company has allotted 1.5 crore equity shares of Re 1 each at a price of Rs 175.15 per equity share. The company also raised Rs 400 crore through zero coupon non-convertible debentures (Redemption premium 11%) payable after three years to a group of investors in November 2013. Both these capital raising initiatives will help Company to reduce its Finance cost and grow both in an organic and inorganic way. The company indicated worsening of working capital cycle in Q3, driven by higher CSD sales. The mgmt said that it is exploring inorganic growth opportunities, mostly a regional brand, post successfully turning around Henkel after its acquisition. JFSL (fabric spa business) recorded a revenue of Rs 30 core and an EBITDA loss of Rs 1.5 â 2 crore for the nine months. In terms of business units, Bangalore is EBITDA positive, Mumbai achieved breakeven while Delhi continues to bleed. JFSL near-term targets include EBITDA breakeven by Q4 FY14. The company is looking to expand in Chennai and Hyderabad. The mgmt has maintained its guidance of achieving around 22% - 25% revenue growth and OPM of 14% - 15% in FY14. |
Highlights of the meet by Capital Mkt:
|
Jyothy labs Q4 PAT contains other income of 15 cr. This other income were present in previous quarters also. From 12-13 AR Notes other income seems to have come from interest income on loans to subsidiaries. I have two doubts
1). Why this other income is still present as merger with henkel happened in 2013 march.
2). In 2014 q3 they raised some money and paid back the debt. If there is no debt in henkels books there is no question of giving loan to henkel and earn interest on that loan.
In some interview Mr Ullas Kamat said that the company has around 175 lacs in bank as war chest currently.
Interest on 175 lac @ 9% for a quarter comes around 4 crs … Still not sure how they have 15 cr as other income this quarter…
Kindly correct me if I am wrong…
Br,
Prasobh
Highlights of the meet by Capital Mkt: The consolidated net sales have gone up by 16% to Rs 385.5 crore while net profit inclined by 52% to Rs 42.4 crore. The rise in revenue was driven by an 8% volume growth and an 8% price-led growthThe operating margin declined by 89 bps to 13.5% due to increase in raw material cost. The higher raw material cost was on account of inferior mix, arising from lower 12% growth in Ujala fabric whitener The fabric care segment grew by 19% to Rs 177.05 crore. Ujala Fabric whitener grew by 12% on a high base of the last year with a volume growth of 6%. The mgmt expects Ujala Fabric whitener to achieve better growth rates in the coming quarters. The company has re-launched Henko Matic in the premium to mild-premium detergent segment with a new proposition. The brand was promoted through a digital campaign, social media and on ground tie-ups. Henko Matic has been launched with the aim of grabbing a 20% share in the matic segment and a 10% share in the super premium detergent segment in the coming years. The brand has higher margins compared with the other brands in the portfolio and with increased sales of the brand the detergent segment's margins will improve over the period of time The dishwashing segment revenues grew by 24% to Rs 101.06 crore.. Pril was re-launched in August 2014 with a new formulation. The company has also launched 225ml bottles and pouches to attract first time users to the brand and the liquid format of the dishwashing detergent. The mosquito repellent segment grew by 19% to Rs 43.84 crore. The strong growth was largely driven by strong sales in the liquid segment which now accounts for 25% of the total mosquito repellent sales. In the quarter, the company launched a low smoke coil in the domestic market. Going ahead, it is planning to launch a new mix of liquid vaporizers in Q3 FY15. The liquid vaporizer sales are expected to grow strongly in the coming quarters The personal care segment's revenues declined by 4% to Rs 46.67 crore. This was mainly on account of a decline in the sales of the Margo soap brand due to a drop in promotions. The mgmt expects Margo's sales to revive in the coming quarters.Margo face wash will be launched in the domestic market in September 2014. The raw material cost inflation stood at 8%, which was mitigated by around 8% price increase during quarter. Inflation was high in palm fatty acid prices and hence the company dropped the promotions for Margo soaps during the quarter. The mgmt said that it does not expect any significant increase in the palm oil prices in the coming quarters. The management is confident of sustaining the strong revenue growth momentum in the coming quarters on the back of innovations, increased distribution reach and adequate promotional activities. The OPM is expected to remain at 13.5-14% in the near future. The gross margins are expected to improve going forward, led by a revival in growth of high margin products like Ujala fabric whitener.ASP for the FY15 will be around 12-13%.The debt at consolidated level is around Rs 400 crore and cash is Rs 110 crore.The mgmt expects laundry business to be EBIDTA positive by March 2015. |
I spoke to a friend in FMCG in the fabric care business and his view was that Jyoti’s brands still do not have even a fraction of the strength of ariel/surf and unfortunately their reach is restricted to urban areas where organized retail is gaining significance. As a result, their channel margins are getting squeezed or the company doing 1+ 1/product bundling campaigns ( I checked a shelf and Pril comes free with henko etc.)
It seems like gross margins IMHO might not improve in a hurry.
As always, my views and they could be wrong
Highlights of the meet by Capital MKT:
With strong growth in Henko, Exo and pril, the company is indeed showing a lot of promise. The market for these products is huge( although very competitive). If jyothy ends up capturing even 10 pc of the market with henko over the next 5-7 yrs, it will lead to huge gains for the stake holders. JLL already enjoying descent market positions in dish washing( with exo and pril duo) and mosquito repellants( with maxo).
Margo revival is another positive.
Disclosure…heavily invested in JLL.
My sense of jyothy is that the management are very poor capital allocators - RoE is consistently below cost and on top of it, they award themselves options and dilute shareholders further.
If you talk to anyone in the FMCG business, they would tell you that henko, pril are all push driven brands (run on discounts and offers) and have no brand pull unlike an ariel, surf or a vim.
Seems to be a case of management chasing unprofitable growth with no fundamental value getting created - looking at cash flows .
Views always welcome
Ujala and Exo are not push driven at all. In fact they have descent brand eqiuty specially in rural and tier-3 & 4 cities. Pril too is not in a bad situation.
Henko certainly is push driven. And that precisely is the challenge before the management. I ve always been skeptical wrt Henko. But growth shown by Henko in last 2 qtrs is comforting. Company has thrown some weight behind Henko with extensive advertisements (with Madhuri Dixit as brand ambassador) and new pink coloured formulation. I ve personally tried it…its quite good…but more importantly it is far better thanerstwhile Henko.
As far as capital allocation is concerned…it is not bad at all considering the company is in the process of building its brands and the company has been doing this for the last 2-3 yrs. They have to spend a lot on advertisement. Its a part of the game.
Moreover the speed with which the company turned around Henkel, cut costs, laid offunnecessary manpower, aquired Henkel’s DEBT…which in turn saved company a lot of taxes is truly commendable.
Well those are my views. Views from fellow members arecordiallyinvited
Just read this friends… http://forbesindia.com/article/big-bet/how-jyothy-laboratories-silenced-sceptics/37536/3 anybody remotely tracking JLL would turn super bullish after reading this…it happened to me atleast!!!
After march 2016…Henkel AG( German FMCG giant) is expected to buy 25 stake in the company…that sure would help JLL pay off all its debt and still have a lot of cash for further expansion…Moreover then there is the possibility of Henkel AG introducing its products in India. That should act as nitro boosters for JLL and its stock price.
Views from fellow members are invited!!!
S Raghunandan is heading Jyothy. He is a very respected marketing man. He is credited with the brand creation of Paras Pharma. The way he has turned around Jyothy in last 2 years is commendable. Personally I liked the placement/packing of Henko in departmental stores.
Thanks for these - let me study all annual reports, look at trends especially cash flows and get back.
Sorry folks I completely disagree on this
I went through the annual reports in detail and I think Jyothy is a ticking time bomb waiting to explode in FY 16. check page 76 of the AR 2014. The company has Rs. 515 Cr. worth of NCD’s that have to be redeemed in FY 2016
Using an old accounting trick, the company has cleverly masked interest payments by issuing zero coupon convertible debentures and routing the premium that it has to pay at the time of redemption into BS (offsetting reserves).
and I find this claim of being debt free atrocious
If I borrowed Rs. 50 lakh against my Rs. 1 Cr. house and said I will give the counterparty my house at the end of 5 years, could I claim that I am debt free because I have no interest payments technically ?
Run the numbers and you will see what I am talking about - the company makes Rs. 165 Cr. of OCF and even if I assume it will double by FY 16 (looks tough with falling margins, increasing ad costs), how will they pay Rs. 600 Cr. in a bullet in FY 2016 ?
The alternative may to roll this debt and/or issue fresh shares both of which are not good from a shareholder stand point.
This looks eerily similar to the FCCB debacle that happened during the go-go years (subex, suzlon etc.) where companies borrowed merrily thinking they would get converted into
For the record, the company is not creating an a reserve either for redemption every year.
This could be a great short candidate in early FY 2016 if the markets are bad and they can’t raise money. If god forbid, we have a lehman type macro crash, this could go quite some way down - there could be a massive liquidity squeeze.
Think of it, if you take out Rs. 60 Cr. of interest out (notional), shareholders are not so rich off after all. remember it’s a 15% discount to others not a 40-50% discount - that’s what it should trade it given the money that’s going to go out.
Counter views always welcome
S Raghunandan is heading Jyothy. He is a very respected marketing man. He is credited with the brand creation of Paras Pharma. The way he has turned around Jyothy in last 2 years is commendable. Personally I liked the placement/packing of Henko in departmental stores.
Oh and I forgot to mention - I always look at cash return on invested capital - CROIC. In this case, it is EBITDA / (equity + long term debt) = / (720 Cr. NW + Rs. 500 Cr. approx of debt) - approx 15% pre-tax - just about cost of equity.
I would’nt be comfortable with anything less than 25-30% given the cash flow that is required.
Succinctly put, the economics of the business in real life are not as good as accounting ratios make it out to be (because of a loop hole in accounting).
Great find, Vardharajan, in spotting that dodgy accounting. I wonder why the management is going overboard in giving themselves liberal stock options, when they must be fully aware that come 2016, the bottom is going to fall out.